Commonwealth Consolidated Acts Commonwealth Consolidated ActsYou can ignore a capital gain or capital loss you make from a CGT event that happens to a dwelling that is your main residence.
However, this exemption may not apply if you are a foreign resident, and may not apply in full if:
• it was your main residence during part only of your ownership period; or
• it was used for the purpose of producing assessable income.
There are special rules for dwellings passed from, or owned by a trustee of, a deceased estate.
There is a similar exemption for a CGT event that is a compulsory acquisition (or similar arrangement) happening to adjacent land but not also to the dwelling itself.
118 - 105 Map of this Subdivision
118 - 120 Extension to adjacent land etc.
118 - 125 Meaning of ownership period
118 - 130 Meaning of ownership interest in land or a dwelling
Rules that may extend the exemption
118 - 135 Moving into a dwelling
118 - 140 Changing main residences
118 - 147 Absence from dwelling replacing main residence that was compulsorily acquired, destroyed etc.
118 - 150 If you build, repair or renovate a dwelling
118 - 155 Where individual referred to in section 118 - 150 dies
118 - 160 Destruction of dwelling and sale of land
Rules that may limit the exemption
118 - 165 Separate CGT event for adjacent land or other structures
118 - 170 Spouse having different main residence
118 - 175 Dependent child having different main residence
Roll - overs under Subdivision 126 - A
118 - 178 Previous roll - over under Subdivision 126 - A
This Division deals with amounts you can deduct, and amounts included in your assessable income, because of these situations:
• you acquire an item of trading stock;
• you carry on a business and hold trading stock at the start or the end of the income year;
• you dispose of an item of trading stock outside the ordinary course of business, or it ceases to be trading stock in certain other circumstances.
Your assessable income includes the market value of an item of trading stock if you dispose of it outside the ordinary course of business or it ceases to be trading stock in certain other circumstances.
This Subdivision treats certain other assets in the same way as trading stock.
If you receive a life benefit termination payment, part of the payment may be tax free (the tax free component).
You are entitled to a tax offset on the remaining part of the payment (the taxable component), subject to limitations.
The extent of your entitlement to the offset depends on your age in the year you receive the offset, on the total amount of payments you receive in the same year, and on the total amount of payments you receive in consequence of the same employment termination.
If you receive a death benefit termination payment after the death of a person, part of the payment may be tax free (the tax free component).
You are entitled to a tax offset on the remaining part of the payment (the taxable component), subject to limitations.
The extent of your entitlement to the offset depends on whether or not you were a death benefits dependant of the deceased, and on the total amount of payments you receive in consequence of the same employment termination.
If a death benefit termination payment is payable to the trustee of the estate of the deceased for the benefit of another person, the payment is taxed in the hands of the trustee in the same way as it would be taxed if it had been paid directly to the other person.
This Subdivision defines an employment termination payment as a payment made in consequence of the termination of a person's employment that is received no later than 12 months after the termination (though the 12 month restriction is relaxed in some circumstances).
An employment termination payment can be a life benefit termination payment (received by the person whose employment is terminated) or a death benefit termination payment (received by another person after the death of a person whose employment is terminated).
Certain types of payments are declared not to be employment termination payments.
Various other terms used in describing the taxation treatment of employment termination payments are defined in the Subdivision.
Step 1. Subtract the * invalidity segment (if any) from the * employment termination payment.
Step 2. Multiply the amount at step 1 by the fraction:
This Subdivision defines what are genuine redundancy payments and early retirement scheme payments.
If you receive a genuine redundancy payment or an early retirement scheme payment, you do not have to pay income tax on the payment so far as it does not exceed a certain amount worked out under this Subdivision.
A part of a genuine redundancy payment or an early retirement scheme payment that is not tax free under this Subdivision will normally be an employment termination payment.
This Subdivision deals with termination payments that arise out of foreign employment.
These payments are not employment termination payments, and are tax free (except for amounts worked out under this Subdivision).
If a payment you receive in consequence of the termination of your employment is made more than 12 months after the termination of your employment, it does not qualify as an employment termination payment, subject to certain exceptions (see section 82 - 130).
The payment is treated as assessable income and no tax concession is allowed under Division 82.
Your assessable income includes discounts on shares, rights and stapled securities you (or your associate) acquire under an employee share scheme.
You may be entitled:
(a) to have the amount included in your assessable income reduced; or
(b) to have the income year in which it is included deferred.
Generally, a discount you receive on shares, rights or stapled securities you acquire under an employee share scheme is included in your assessable income when you acquire the beneficial interest in those shares, rights or securities.
You may be entitled to reduce the amount included in your assessable income if you meet one of 2 sets of conditions.
If you are a foreign resident, only the part of the discount that relates to your employment in Australia is included in your assessable income.
If there is a real risk you might forfeit the share, right or stapled security you acquired under an employee share scheme, you don't include the discount in your assessable income when you acquired it. Instead, in the first income year you are able to dispose of the share, right or security, your assessable income will include any gain you have made to that time. If 15 years pass, the gain is included in that income year instead.
This deferred taxing point can also apply to:
(a) a share or stapled security you acquire under salary sacrifice arrangements, if you get no more than $5,000 worth of shares under those arrangements; or
(b) a right, if the scheme restricted you immediately disposing of the right, and stated that this Subdivision applies.
You can deduct an amount for shares, rights or stapled securities you provide to your employees under an employee share scheme if they are eligible for a reduction in their assessable income under section 83A - 35. The amount you can deduct is equal to that reduction.
You must defer any deduction you are entitled to for amounts you provide to finance your employees acquiring interests in shares, rights or stapled securities under an employee share scheme until the employees have actually acquired those interests.
This Part is about 2 issues relating to personal services income.
Division 85 limits the entitlements of individuals to deductions relating to their personal services income.
Division 86 sets out the tax consequences of individuals' personal services income being diverted to other entities (often called alienation of the income).
These Divisions do not affect individuals or other entities that conduct personal services businesses. Division 87 defines personal services businesses.
This Division sets out amounts, relating to personal services income, that an individual cannot deduct. In particular, deductions that are unavailable to an employee are similarly unavailable to an individual who has personal services income and who is not an employee.
However, this Division does not apply if the individual is conducting a personal services business or receives the income as an employee or office holder.
Income from the rendering of your personal services is treated as your assessable income if it is the income of another entity and is not promptly paid to you as salary.
However, this does not apply if the other entity is conducting a personal services business.
There are limits to the other entity's entitlement to deductions to offset against the amount treated as your income.
Method statement
Step 1. Work out, for the income year, the amount of any deductions (other than * entity maintenance deductions or deductions for amounts of salary or wages paid to you ) to which the * personal services entity is entitled that are deductions relating to your * personal services income.
Step 2. Work out, for the income year, the amount of any * entity maintenance deductions to which the * personal services entity is entitled.
Step 3. Work out the * personal services entity's assessable income for that income year, disregarding any income it receives that is your * personal services income or the personal services income of anyone else.
Step 4. Subtract the amount under step 3 from the amount under step 2.
Note 1: Step 4 ensures that, before entity maintenance deductions can contribute to the reduction, they are first exhausted against any income of the entity that is not personal services income.
Note 2: If the personal services entity receives another individual's personal services income, see section 86 - 25.
Step 5. If the amount under step 4 is greater than zero, the amount of the reduction under subsection (1) is the sum of the amounts under steps 1 and 4.
Step 6 . If the amount under step 4 is not greater than zero, the amount of the reduction under subsection (1) is the amount under step 1.
Divisions 85 and 86 do not apply to personal services income that is income from conducting a personal services business.
It is not intended that the Divisions apply to independent contractors.
A personal services business exists if there is a personal services business determination or if one or more of 4 tests for what is a personal services business are met.
Regardless of how much of your personal services income is paid from one source, you can self - assess against the results test to determine whether you are an independent contractor. The results test is based on the traditional tests for determining independent contractors and it is intended that it apply accordingly.
However, you cannot "self - assess" whether you meet any of the other 3 tests if 80% or more of your personal services income is from one source. In these cases, you need a personal services business determination in order to be treated as conducting a personal services business.
Working out your net capital gain
Step 1. Reduce the * capital gains you made during the income year by the * capital losses (if any) you made during the income year.
Note 1: You choose the order in which you reduce your capital gains. You have a net capital loss for the income year if your capital losses exceed your capital gains: see section 102 - 10.
Note 2: Some provisions of this Act (such as Divisions 104 and 118) permit or require you to disregard certain capital gains or losses when working out your net capital gain. Subdivision 152 - B permits you, in some circumstances, to disregard a capital gain on an asset you held for at least 15 years.
Step 2. Apply any previously unapplied * net capital losses from earlier income years to reduce the amounts (if any) remaining after the reduction of * capital gains under step 1 (including any capital gains not reduced under that step because the * capital losses were less than the total of your capital gains).
Note 1: Section 102 - 15 explains how to apply net capital losses.
Note 2: You choose the order in which you reduce the amounts.
Step 3. Reduce by the * discount percentage each amount of a * discount capital gain remaining after step 2 (if any).
Note: Only some entities can have discount capital gains, and only if they have capital gains from CGT assets acquired at least a year before making the gains. See Division 115.
Step 4. If any of your * capital gains (whether or not they are * discount capital gains) qualify for any of the small business concessions in Subdivisions 152 - C, 152 - D and 152 - E, apply those concessions to each capital gain as provided for in those Subdivisions.
Note 1: The basic conditions for getting these concessions are in Subdivision 152 - A.
Note 2: Subdivision 152 - C does not apply to CGT events J2, J5 and J6. In addition, Subdivision 152 - E does not apply to CGT events J5 and J6.
Step 5. Add up the amounts of * capital gains (if any) remaining after step 4. The sum is your net capital gain for the income year.
Working out your net capital loss
Step 1. Add up the * capital losses you made during the income year. Also add up the * capital gains you made.
Step 2. Subtract your * capital gains from your * capital losses.
Step 3. If the Step 2 amount is more than zero, it is your net capital loss for the income year.
Working out your capital gain
Step 1. Work out the * capital proceeds from the * disposal.
Step 2. Work out the * net asset amount.
Step 3. If the Step 1 amount is greater , you make a capital gain equal to the difference.
Working out the net asset amount
Step 1. Work out the total of the * cost bases (at the time of the disposal) of the * CGT assets that the trustee * acquired on or after 20 September 1985 and that formed part of the trust capital at that time.
Step 2. Work out the total of the * market values (at the time of the disposal) of the * CGT assets that the trustee * acquired before 20 September 1985 and that formed part of the trust capital at that time.
Step 3. Work out the amount of money that formed part of the trust capital at the time of the disposal.
Step 4. Add up the Step 1, 2 and 3 amounts.
Step 5. Subtract from the Step 4 amount any liabilities of the trust at the time of the disposal.
Step 6. The result is the net asset amount .
Working out your capital loss
Step 1. Work out the * capital proceeds from the * disposal.
Step 2. Work out the * reduced net asset amount.
Step 3. If the Step 1 amount is less , you make a capital loss equal to the difference.
Working out the reduced net asset amount
Step 1. Work out the total of the * reduced cost bases (at the time of the disposal) of the * CGT assets that the trustee * acquired on or after 20 September 1985 and that formed part of the trust capital at that time.
Step 2. Work out the total of the * market values (at the time of the disposal) of the * CGT assets that the trustee * acquired before 20 September 1985 and that formed part of the trust capital at that time.
Step 3. Work out the amount of money that formed part of the trust capital at the time of the disposal.
Step 4. Add up the Step 1, 2 and 3 amounts.
Step 5. Subtract from the Step 4 amount any liabilities of the trust at the time of the disposal.
Step 6. The result is the reduced net asset amount .
This Division sets out the cases where a capital gain or loss is made by someone other than the entity to which a CGT event happens.
The entities affected are:
ï‚· partnerships (Subdivision 106 - A);
ï‚· bankruptcy trustees and company liquidators (Subdivision 106 - B);
ï‚· trustees where there is an absolutely entitled beneficiary (Subdivision 106 - C);
ï‚· security holders (Subdivision 106 - D).
This Division defines the various categories of assets that are relevant to working out your capital gains and losses. They are CGT assets, collectables and personal use assets.
It also tells you how capital losses from collectables and personal use assets are relevant to working out your net capital gain or loss.
It also sets out when land, buildings and capital improvements are taken to be separate CGT assets.
For CGT purposes, there are:
• exceptions to the common law principle that what is attached to the land is part of the land; and
• special rules about buildings and adjacent land; and
• rules about when a capital improvement to a CGT asset is treated as a separate CGT asset.
This Division sets out the ways in which you can acquire a CGT asset and the time of acquisition.
The time of acquisition is important for indexation, and for the exemption of assets acquired before 20 September 1985.
Generally, you acquire a CGT asset when you become its owner. You can also acquire a CGT asset:
• as a result of a CGT event happening: see section 109 - 5; or
• in other circumstances: see section 109 - 10.
This Division also directs you to special acquisition rules in other Divisions.
Method statement
Step 1. Work out each element of the * cost base and * reduced cost base of the original asset at the time of the event referred to in subsection (1).
Step 2. Apportion in a reasonable way each element to each new asset. The result is each corresponding element of the new asset's * cost base and * reduced cost base.
Method statement
Step 1. Work out the * cost base (all elements) of the asset as at the * quarter in which the modification occurred.
Step 2. Subtract the amount of the reduction.
Step 3. The Step 2 amount forms a new first element of your * cost base, and is later indexed as if you had incurred expenditure equal to that amount in the * quarter in which the modification occurred.
A discount capital gain remaining after the application of any capital losses and net capital losses from previous income years is reduced by the discount percentage when working out your net capital gain.
A capital gain from a CGT asset is a discount capital gain only if the entity making the gain acquired the asset at least a year before the CGT event causing the gain and no choice has been made to include indexation in the cost base of the asset.
Special rules apply to the net income of trusts with net capital gains, to ensure that the appropriate discount percentage is applied and to let beneficiaries apply their capital losses against their share of the trust's capital gains.
Special rules apply to certain capital gains made by listed investment companies to enable shareholders receiving dividends that include these gains to obtain benefits similar to those conferred by the CGT discount.
This Subdivision sets out rules for dealing with the net income of a trust that has a net capital gain. The rules treat parts of the net income attributable to the trust's net capital gain as capital gains made by the beneficiary entitled to those parts. This lets the beneficiary reduce those parts by any capital losses and unapplied net capital losses it has.
If the trust's capital gain was reduced by either the general 50% discount in step 3 of the method statement in subsection 102 - 5(1) or by the small business 50% reduction in Subdivision 152 - C (but not both), then the gain is doubled. The beneficiary can then apply its capital losses to the gain before applying the appropriate discount percentage (if any) or the small business 50% reduction.
If the trust's capital gain was reduced by both the general 50% discount and the small business 50% reduction, then the gain is multiplied by 4. The beneficiary can then apply its capital losses to the gain before applying the appropriate discount percentage (if any) and the small business 50% reduction.
Division 6E of Part III of the Income Tax Assessment Act 1936 will exclude amounts from the beneficiary's assessable income if necessary to prevent it from being taxed twice on the same parts of the trust's net income.
This Subdivision allows shareholders of certain listed companies to obtain benefits similar to those conferred by discount capital gains.
The benefits accrue where dividends paid by those companies represent capital gains that would be discount capital gains had they been made by an individual, a trust or a complying superannuation entity.
This Division sets out various exemptions for many capital gains and losses.
There are other provisions that provide exemptions from CGT liability, for example, Division 104 (exceptions from CGT events), Division 152 (small business relief) and Division 50 (exempt entities).
You can ignore a capital gain or capital loss you make from a CGT event that happens to a dwelling that is your main residence.
However, this exemption may not apply if you are a foreign resident, and may not apply in full if:
• it was your main residence during part only of your ownership period; or
• it was used for the purpose of producing assessable income.
There are special rules for dwellings passed from, or owned by a trustee of, a deceased estate.
There is a similar exemption for a CGT event that is a compulsory acquisition (or similar arrangement) happening to adjacent land but not also to the dwelling itself.
118 - 180 Acquisition of dwelling from company or trust on marriage or relationship breakdown--roll - over provision applying
Partial exemption rules
118 - 185 Partial exemption where dwelling was your main residence during part only of ownership period
118 - 190 Use of dwelling for producing assessable income
118 - 192 Special rule for first use to produce income
Dwellings acquired from deceased estates
118 - 195 Dwelling acquired from a deceased estate
118 - 197 Special rule for surviving joint tenant
118 - 200 Partial exemption for deceased estate dwellings
118 - 205 Adjustment if dwelling inherited from deceased individual
118 - 210 Trustee acquiring dwelling under will
118 - 215 What the following provisions are about
118 - 218 Exemption available to trustee--main case
118 - 220 Exemption available to trustee--after the principal beneficiary's death
118 - 222 Exemption available to other beneficiary who acquires the CGT asset after the principal beneficiary's death
118 - 225 Amount of exemption available after the principal beneficiary's death--general
118 - 227 Amount of exemption available after the principal beneficiary's death--cost base and reduced cost base
118 - 230 Application of CGT events E5 and E7 in relation to main residence exemption and special disability trusts
Compulsory acquisitions of adjacent land only
118 - 240 What the following provisions are about
118 - 245 CGT events happening only to adjacent land
118 - 250 Compulsory acquisitions of adjacent land
118 - 255 Maximum exempt area
118 - 260 Partial exemption rules
118 - 265 Extension to adjacent structures